Category Archives: Energy Policy

Another Congressional Show Trial

The heads of so-called “Big Oil” were brought before yet another Stalinist tribunal Congressional Committee today and asked to explain how they could commit the unpardonable sin of making a profit:

WASHINGTON — Top executives of the five biggest U.S. oil companies said Tuesday they know high fuel prices are hurting consumers, but deflected any blame and argued their profits _ $123 billion last year _ were in line with other industries.

“On April Fool’s Day, the biggest joke of all is being played on American families by Big Oil,” said Rep. Edward Markey, D-Mass., as his committee began hearing from the oil company executives.

Lawmakers were looking for answers to the soaring fuel costs a day after the Energy Department said the national average price of gasoline reached a record $3.29 cents a gallon and global oil prices remained above $100 a barrel although supplies of both gasoline and oil seemed to be adequate.

“I heard what you are hearing,” John Hofmeister, president of Shell Oil Co., told Markey, adding in prepared testimony that he knows that “Americans are worried about the rising price of energy…. These cost increases are hitting consumers hard, particularly the poor and those on fixed incomes.”

But neither Hofmeister nor the executives from Exxon Mobil Corp., BP America Inc., Chevron Corp., and ConocoPhillips said their companies should be blamed and they rejected the notion that their profits are extreme.

“Our earnings, though high in absolute terms, need to be viewed in the context of the scale and cyclical, long-term nature of our industry as well as the huge investment requirements,” said J.S. Simon, Exxon Mobil’s senior vice president. Last year the oil and gas industry earned 8.3 cents per dollar of sales, only a little higher than the Dow Jones Industrial Average for major industries, he argued in prepared testimony.

In other words, the marginal profit of Exxon Mobil or any of the other oil companies isn’t any different, on average, from any other major industry. There are no “windfall” profits. There is no price “gouging.” Yes, profits are higher in relative terms, but that’s because in relative terms the price of the chief commodity used in the production of gasoline, crude oil, was recently higher than it has ever been, even when adjusted for inflation.

In order to understand that, of course, you have to understand economics, which is the one thing that the demagogues on Capitol Hill don’t understand:

Markey challenged the executives to pledge to invest 10 percent of their profits to develop renewable energy and give up $18 billion in tax breaks over 10 years so money could be funneled to support other energy and conservation.

But who, Congressman Markey, is supposed to decide which alternative energy projects are the most promising ? Isn’t that something we’ve always left up to the market.

There’s nothing wrong with making a profit, and that’s all the oil companies have done. Until Congressman Markey and his henchman can point to a similar contribution they have made to the productive capacity of the entire planet, they should just shut up.

Earth Hour — What They SHOULD Have Said

Allow me to engage in a bit of strawman-bashing. In the comments to Don Boudreaux’s excellent post at Cafe Hayek, a rather idiotic argument came up. It is the same argument that many of our own contributors received when we opposed Ron Paul, and commenters told us “If you don’t like Ron Paul, you must tell us who we SHOULD vote for.” It’s a strawman, of course, because criticizing one idea doesn’t obligate you to posit your own. But that’s not good enough for some people, as this comment to Don’s post shows:


Instead of bringing forward some better and more rational proposals that will help to avoid that hysteria that indeed clouds the environmental issues and could cause the remedies to be worse than the sickness, and help the world to be able to use scarce resources wisely and effective… you live up to your role as an educator, as a beacon of light… and just make fun of it all.

As if the folks at Cafe Hayek haven’t offered their own positive ideas on a whole host of topics, one bit of criticism gets the “well, what would YOU do about it?” response. Laughable…

…but I’m going to offer a suggestion anyway. I’m going to offer the free-market environmentalist answer.

Here’s what the World Wildlife Fund should have said:

Greetings. In our modern world, we are faced with many problems. While the work of caring environmentalists and improved technology has done a lot to improve the environmental situation in the Western world, we have much farther to go. Rising populations and increased worldwide standard of living are only adding to the strain that humanity is placing on our planet. Oil and coal have served us well to bring us to this point, but exact a heavy toll on the planet to extract and use. These sources of energy are the past; they are not the future.

Conservation is one part of the solution to this problem. Conservation helps the environment by reducing demand, and helps individuals by reducing the prices they pay for the resources they use. Taken in the aggregate across society, reduced individual energy use helps to ensure that we can move from today’s needs to the future, and do so in a smooth transition. We hope that our recent Earth Hour event reminds humanity that they should be ever-mindful of their impact on the planet, and do what they can to minimize that individual impact, for the good of their pocketbooks and the planet.

But conservation is not enough. The pressures of increased population and increased prosperity will only lead to higher energy consumption. In order to protect our Earth, we must find alternative energy sources, with a smaller impact on our environment. To ensure widespread acceptance, the solution must be both environmentally-friendly and cheap. Our current solutions show promise, but are too expensive to be deployed on a wide scale. Thankfully, rising prices of oil will make it more economically feasible to explore alternatives, and the work of firms such as Massachussetts’ Konarka Technologies are helping to bridge the gap between today and the future.

Environmentalism and energy consumption are not mutually-exclusive. The crucial factor, however, is technology. We can solve these problems, but it won’t be done by politicians or policymakers. It won’t come from Washington or Brussels. And it can’t be done by mandate. The solutions will come from hard-working, caring, dedicated scientists and engineers. It will come from those in the private sector who stand to make a profit from cheap, clean energy.

Those who care about our planet have many options open to them. For those who are still young, with their careers and lives ahead of them, we encourage you to study physics, materials science, and engineering. You can directly impact the problem by researching, developing, and implementing the technologies which will help us solve these problems. For those who may be too late to change their career path, there are countless investment opportunities in the companies working on these problems. The beauty of these options is that it offers you both the opportunity to profit and enact a social good.

Turning off your lights for an hour is a reminder of what you can do in the short term, and of the important problem that we must solve. But if you really want to help, it’s time to get your hands dirty and start making the long-term solution a reality.

Those of us on “the right” are often lambasted as uncaring when it comes to environmental problems. We are not. We are simply cognizant of the fact that the solutions “the left” offers are typically damaging, counterproductive, and anti-prosperity. The real solution will come from the same place all solutions come — the long-term work by people trying to improve their own lives, and by extension improve the world for the rest of us.

Google “Doing Their Part” For Earth Hour

Seen today:


“Earth Hour” is a worldwide event where individuals are asked to shut off their lights for an hour. Ineffectual, pointless, but that’s what we need to do “for the planet”.

So what does Google do? Do they run some of their servers in a lower-power mode, perhaps sacrificing the speed of search results in order to reduce energy use? Nope. Do they even do the politically correct but economically idiotic idea of buying “carbon offsets” for the energy they use for that hour? Nope. Does blackening their home page even save energy? Nope. In fact, outside of changing a few lines of very simple code, it doesn’t appear that this gesture has taken any effort at all.

What have they accomplished? Well, they’ve “raised awareness”. Good work, fellas, because without Google, I may never have known about the idea of conservation!

What a joke.

Others covering this: Don Boudreaux & Billy Beck

Gordon Brown Resists the EU’s Biofuel Targets

The Guardian– Gordon Brown is preparing for a battle with the European Union over biofuels after one of the government’s leading scientists warned they could exacerbate climate change rather than combat it.

In an outspoken attack on a policy which comes into force next week, Professor Bob Watson, the chief scientific adviser at the Department for Environment, Food and Rural Affairs, said it would be wrong to introduce compulsory quotas for the use of biofuels in petrol and diesel before their effects had been properly assessed.

“If one started to use biofuels … and in reality that policy led to an increase in greenhouse gases rather than a decrease, that would obviously be insane,” Watson said. “It would certainly be a perverse outcome.”

Under the Renewable Transport Fuels Obligation, all petrol and diesel must contain 2.5% of biofuels from April 1. This is designed to ensure that Britain complies with a 2003 EU directive that 5.75% of petrol and diesel come from renewable sources by 2010.

But scientists have increasingly questioned the sustainability of biofuels, warning that by increasing deforestation the energy source may be contributing to global warming.

Watson’s warning was echoed last night by Professor Sir David King, who recently retired as the government’s chief scientific adviser. He said biofuel quotas should be put on hold until the results were known of a review which has been commissioned by ministers.

“What is absolutely desperately needed within government are people of integrity who will state what the science advice is under whatever political pressure or circumstances,” he said

Suspending my skepticism of the man made global warming phenomenon for a moment; the scientists make a very important point in this article about how government should think first before acting. The problem is that governments don’t think; people think. If the people of the U.K., the U.S. or anywhere else for that matter believe they can depend on the government making intelligent decisions on their behalf, this biofuels boondoggle is only the latest example of why those who would outsource their thinking to the government are mistaken.

Fortunately for the U.K., they have a prime minister in Gordon Brown who is willing to resist the knee jerk reaction to go along with the European Union and actually listen to scientists rather than seek out scientists who will tow the popular party line.

The prime minister made clear that Britain is wary of the target when he said last November: “I take extremely seriously concerns about the impact of biofuels on deforestation, precious habitats and on food security, and the UK is working to ensure a European sustainability standard is introduced as soon as possible, and we will not support an increase in biofuels over current target levels until an effective standard is in place.”

Unfortunately for us here on the other side of the pond, President Bush took the opposite approach: he caved. In 2007 President Bush signed legislation which would require the production of 36 billion gallons of biofuels by 2022. As Brad pointed out in his recent post on this subject, E-85 ethonal in particular wastes a tremendous amount of water.

What the biofuels proponents fail to tell consumers is that E-85 ethanol is horribly inefficient. As George Mason University Economics Professor Walter Williams points out, this particular fuel cannot be piped (because of pipeline corrosion from leftover water) but must be shipped by trucks and trains, damages engines not specifically designed for ethanol (again because of the leftover water), and is 20 to 30 percent less efficient than petroleum. Williams goes on to explain that to produce one SUV tank worth of fuel with E-85 requires 450 pounds of corn; enough corn to feed one person for an entire year!

Despite all of this, the politics is leading the way rather than the science and the free market. The farm subsidy lobby is very powerful in Washington in both political parties (and is apparently powerful in the EU as well).

And that’s really the dirty little secret. But for government subsidies, E-85 ethanol would have no chance of competing in the free market. Biofuel production displaces the basic economic resources of land, labor, capital, and entrepreneurial ability which could otherwise be used to better address the energy problem. British scientists are already thinking about the possible consequences of the EU’s biofuels policies. How much pain can be avoided if only policy makers will have the courage to listen before allowing such a disastrous policy from moving forward? The only way to solve the energy problem is for governments to get out of the way, allow innovators to innovate, and let the free market pick the winners and losers.

Hat Tip: Cato Daily Dispatch

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